U.S. District Judge Jed Rakoff, not known for pulling his punches, asked SEC lawyer Valerie Szczepanik about Gupta's case at a hearing in the SEC's case against former Galleon Group trader Adam Smith, who has pleaded guilty and is cooperating with prosecutors.

"I don't understand why Mr. Gupta is the subject of an administrative proceeding before the SEC while everyone else is the subject of a proceeding before a district court judge," Rakoff said.

The decision to bring an administrative rather than an enforcement action in the Gupta case "was made by other above me," Szczepanik told Rakoff.

"What you said was not an answer to my question," the judge replied. "On its face, it's sort of bizarre, but there it is."

The hearing was the result of an SEC request to delay Smith's case until after Rajaratnam's ongoing criminal trial is over. Rakoff is also overseeing the SEC's lawsuit against Rajaratnam and has reluctantly agreed to delay that trial until after the criminal trial ends.

Rakoff said at the hearing that both sides in the Smith case have said they are in settlement talks.

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